PART II
Penned by Anjaney
INTRODUCTION
About two weeks ago, we saw the President of the People’s Republic of China issue a message to Contemporary Amperex Technology Co., Limited (CATL), a Chinese manufacturer of batteries specialising in EV batteries. If the reader recalls the first part of this article, they will remember CATL as one of the firms in the syndicate that struck the lithium extraction and processing deal with Bolivia earlier this
year. Xi Jinping expressed that he was both “pleased and concerned” about CATL’s EV battery dominance. For him to be pleased was obvious, CATL is a global leader in its domain. But for him to be concerned it meant only one thing: fear of overcapacity. That’s right. China’s afraid it will produce too many EV batteries for its own good. And for good reason. Currently, the industry is booming – as per the MIT Tech Review, the number of EVs sold in China, shot up from 1.3 million to 6.8 million over the past two years. That’s an increase of nearly 420%! In comparison, the number of EVs sold in the US was merely 800,000.
From 500 EVs sold in the country in 2009, China now commands half the world’s sales of EVs.
Which brings us to the topic at hand: their dominance of the midstream and the downstream parts of the supply chain that contribute to this massive success.
The Midstream Segment – The Batteries
We shall pick up exactly where we left off last time – the midstream segment, where the batteries are made.
To put the importance of this part of the supply chain into perspective, consider this: it is estimated that the battery accounts for close to 40% of an EV vehicles’ cost. By internalising this segment of the supply chain, Chinese firms would wield control over a substantial portion of the margin made on each car.
China dominates the production of EV batteries. There is nobody even close to where they are right now. BloombergNEF regularly publishes a “Global Lithium-ion Battery Supply Chain Ranking” which ranks 30 leading countries across five key “themes” that themselves are based on the analysis of 45 metrics. In terms of Battery Manufacturing, China leads outright, commanding close to a whopping 77% of the world’s battery cell production capacity in 2022! It is home to six of the ten largest battery producers in the world. The closest competitor, Poland, only commands close to 6% of world capacity, exhibiting less than one-tenth of China’s potential. The USA too, coming at third place, can only boast of generating about 6% of the world’s capacity.
The Components
In this context, it is important to note that cell component manufacturing involves the use of three primary resources: anode and cathode materials, electrolytes and separators.
Let’s begin with this stunning fact: Chinese interests control close to 90% of the world’s production of anode and electrolyte production!
If you remember the statistics from Part 1, it’s easy to see why – China is a world leader in the production of graphite – an important component in anode production. Besides, according to a report by the International Energy Agency, the top six companies, all Chinese, account for two-thirds of world production capacity in these materials. Seven top companies account for 55% of the world’s cathode production and a majority of them are Chinese. As far as electrolytes go, one Chinese firm, Tinci, accounts for close to 35% of electrolyte salt production.
The Battery Cell and Pack Production
While China may boast of significant capacity, the fact of the matter is that the EV market is still quite nascent. Owing to this, and other geopolitical factors, China does not operate at full capacity.
In terms of true production, CATL alone accounted for nearly 37% of world EV battery production in 2022. Combined with the production of other Chinese firm such as CALB, Gotion, Farasis etc… China accounts for approximately 47% of global EV battery production.
And China’s not just a producer – it’s also an innovator. The country pioneers the production of Lithium iron phosphate (LFP) batteries in contrast to lithium nickel manganese cobalt batteries (NMC) which are
more common in the West.
LFP batteries are a cheaper and a safer option – however, it had low energy density, which companies like CATL are actively trying to improve.
Today, as it stands, one third of all EV batteries in use are LFP batteries according to the MIT Technology Review.
The Downstream Supply Chain – The Cars
As we’ve seen already, demand for EVs in China is at an all-time high – the country saw close to 6.8 million EVs being sold within its borders last year.
Concrete data regarding the aggregate number of cars manufactured in China was unobtainable, unfortunately. However, Counterpoint Research estimates that 81% of the EV market in China is cornered by local brands.
Last year, China’s EV exports climbed 120% YoY to 679000 vehicles in 2022.
Additionally, China’s largest EV car producer, BYD, recently overtook Tesla as the largest producer of EVs in the world.
BYD posted sales numbers of 1.86 million units in 2022 which, as the South China Morning Post notes, is three times its sales in 2021! In comparison, Tesla – for long the world leader – sold 1.31 million units. The gap is staggering… and only growing.
Naturally, we must keep in mind that most of BYD’s sales are within China. The Berkshire Hathaway-backed firm is also a low cost player whose cars normally sell in the price range 100,000 to 200,000 yuan while Tesla’s cars are a bit more costly, selling for more than 300,000 yuan per car on average. Today, as it stands, one third of all EV batteries in use are LFP batteries according to the MIT Technology Review.
Therefore, Tesla is definitely the more profitable business. However, it’s easy to see China build on these capabilities to increase this gap in sales.
Final Thoughts and Considerations
Over the course of this article – both Part 1 and Part 2 – we’ve tried to understand how entrenched China’s position in the global EV market is – all the way from material extraction and processing to the final sale of the EV. However, in our quest to keep this examination short, we have omitted pertinent considerations.
For example, we have omitted a thorough discussion of how Chinese firms’ dominance in the EV sphere is a strategic asset to the nation as a whole. Take Shaoshan Liu’s take on the matter for instance – in an inspiring article for The Diplomat, Liu argues that through the leadership cultivated in the EV supply chain, China stands in an enviable position to leverage the related “talent pool, technologies and manufacturing capabilities” to “accelerate China’s economic transformation into the automation age.” Another noteworthy consideration or, rather, concern is raised by Davide Castelvecchi in a well researched article for Nature. In the very name of the article, Castelvecchi asks a simple question – Electric cars and batteries: how will the world produce enough?
Additionally, while China is a leader in the EV supply chain, the way it exerts its authority is not exactly the most ethical. In a moving piece for Rest of the World, Antonia Timmerman asserts that in Indonesia, the
process of nickel extraction is ravaging the environment and giving rise to serious social problems.
Halim Nazar, in that Institute of Chinese Studies Research Blog we talked about in Part 1, points out that the Sicomines agreement for extraction of cobalt in the DRC has been widely criticised for disproportionately favouring the Chinese companies.
If we want to delve deeper into these matters, a single article is scarcely enough. That doesn’t, however, diminish the relevance of these topics one bit. The point of this article, however, was to inform, and start new conversations. If I have accomplished that, I will consider this effort a success.
References
https://www.nrdc.org/bio/jordan-brinn/electric-vehicle-battery- supply-chains-basics
https://www.technologyreview.com/2023/02/21/1068880/how-did- china-dominate-electric-cars-policy/
https://www.visualcapitalist.com/chinas-dominance-in-battery- manufacturing/
https://www.resilinc.com/blog/ev-segment-will-likely-depend-on- china-for-many-years/
https://www.iea.org/reports/global-ev-outlook-2022/executive- summary
https://www.barrons.com/articles/byd-tesla-stock-price-ev-sales- china-9393cb43
https://www.counterpointresearch.com/china-ev-sales-2022/
https://insideevs.com/news/629273/byd-plugin-car-sales- december2022/
https://www.nature.com/articles/d41586-021-02222-1
https://cnevpost.com/2023/02/08/global-ev-battery-market-share- 2022-catl-37-byd-13-6/
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